Here's what you give up if you join the gig economy
The share of “non-traditional workers” in our labor force – such as independent contractors and freelancers – has been growing faster than any other type of worker. The new tax code is likely to accelerate this trend, thanks to the big tax break it offers to businesses run by individuals. Independent contractors (or sole proprietors) can now write off 20 percent of their business income in many cases. “This is putting grease on that slide,” said David Weil, former administrator of the Labor Department’s Wage and Hour Division under President Barack Obama and author of “The Fissured Workplace.” Ceilidh Gao, an attorney at the National Employment Law Center, said she expects employers to try to advertise the new tax benefits of being an independent contractor to potential or current employees. “It saves employers money,” Gao said. “They’re able to shift costs on to the worker.” Indeed, benefits account for more than 30 percent of an employee’s cost to his or her employer, according to the Department of Labor. These benefits generally are not offered to independent contractors. For some people, the conversion from employee to independent contractor could be worthwhile, particularly for those in a high tax bracket, said Howard Gleckman, a senior fellow with the Tax Policy Center. Then there are people who have no choice but to be an independent contractor. In addition, baked into the the new code is yet another incentive for employees to, well, not be employees: Certain employee deductions are gone, while business write-offs remain. Of course, many people are not offered some benefits, despite being an employee. Plus, a growing number of individuals prefer the freedom and flexibility that comes with being self-employed. “The nine-to-five world was created in the times when you served a company. It used to be that people said ‘I’m so proud that I work for,’ fill in the blank,” said Miguel Centeno of Shared Economy CPA, a firm that specializes in taxpayers who are independent contractors. “Now there’s more of a focus on how we work as individuals.” In any case, employees would be wise to pause before they surrender their employee status in pursuit of the new tax break, Weil said.”My concern is that they don’t know what they’re losing,” he said. “It’s really a sweeping set of safety net and discrimination protections.” Here’s a list of some of those things you’d lose (and might have to pay for yourself) as an independent contractor. “If you’re now a sole proprietor, you’re no longer going to get employer-sponsored health insurance,” Gleckman said. On average, employees pay 18 percent of their health insurance premiums, according to the Kaiser Family Foundation. The average annual premium for single health insurance in 2017 was $6,690, they found, with the worker paying $1,213. An independent contractor would have to pick up that additional $5,477 a year — although the cost of those premiums may be deductible. Employers pay half of their workers’ self-employment taxes, which is about 15 percent of your income to…
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